Consider the following information:

Question #1 (10 points)
JT is the new controller for the consumer division of ABC company. In the past five years, ABC’s earnings have grown by at least 15% annually, with the consumer division’s earnings growing by over 20% annually over the same time-period. In the 4th quarter of the current year, however, it is projected that consumer’s income will grow by 8% and ABC’s will grow by 10%. WR, consumer division’s president, wants JT to take some of the following “end of the year” actions in order to improve consumer’s reported earnings. Under the previous controller, these types of actions were more or less taken as acceptable practices.

1) Deferring routine monthly maintenance on equipment by an outside vendor until January.
2) Extending the close of the fiscal year beyond December 31 so that some sales from next year are counted in the current fiscal year.
3) Altering dates on shipping documents so that sales made in January of the next year appear to have occurred in December of the current year.
4) Giving salespeople a double bonus to exceed December targets.
5) Reducing the number of December advertising spots and increasing the number to be run in January.
6) Deferring advertising costs by asking the outside advertising agency to delay sending out bills for December advertisements until January or by having the agency indicate that advertisements run in December were run in January.
7) Persuading customers to accept merchandise for shipment in December that they would normally not order until the following year.

a) Classify each of these possible actions as “acceptable” or “unacceptable” according to the IMA Standards of Ethical Behavior for Practitioners of Management Accounting and Financial Management. Be sure to justify / explain your classifications.

b) What should JT do if WR suggests that these actions are taken in every division of ABC and that the consumer division will be greatly harmed if its results are not portrayed in the it does not present “better” results than 8% growth?

Question #2 (10 points)

The following per unit information is based on expected production and sales of 1,200 units:

Selling price $25
Var COGS $8
Fixed COGS $6
Gross Profit $11

Var S&A $2
Fixed S&A $4
Operating Income $5

The firm’s tax rate is 40%.

a) How many units need to be sold to break-even?
Fixed cost – cont margin (25 -
Break-even point in units = Fixed Cost/Unit CM
b) How many units need to be sold to earn operating income of $7,500?

a) Compute total overhead allocated to each job under an allocation system where overhead is allocated based on machine-hours.

b) Computer total overhead allocated to each job under an ABC approach using the activity drivers identified in the first table.

c) What can XYZ do with the information from the ABC system? Be specific in your recommendations.

Question #6 (15 points)

On January 1, the XYZ Company had 8,500 physical units in WIP. During January, it started an additional 35,000 units. At the end of January, 10,500 units remained in WIP.

The units in WIP on January 1 were 100% complete with respect to direct materials and 20% complete with respect to conversion costs. The units in WIP on January 31 were 100% complete with respect to direct materials and 60% complete with respect to conversion costs. Conversion costs are incurred evenly throughout the process while direct materials are added at the beginning of the process.

WIP on January 1 totaled $108,610, consisting of $63,100 in direct materials and $45,510 in conversion costs. During January, $284,900 in direct materials and $485,040 in conversion costs were added to production.

a) Using the weighted-average method of process costing, assign total costs to units completed in January and to units in WIP as of January 31.

b) Using the first-in, first-out (FIFO) method of process costing, assign total costs to units completed in January and to units in WIP as of January 31.

a) The company is currently producing 15,000 units per month. A potential customer has contacted the firm and offered to purchase 5,000 units this month only at a price of $4.25 per unit. There would be no variable marketing costs incurred on the contract. Should the company accept the special order? Why or why not? Be specific.

b) Assume the same facts as in part a, except that the company is producing 20,000 units per month. Should the company accept the special order? Why or why not? Be specific.

c) The company is considering selling 1,000 units that are in danger of becoming obsolete. What is the minimum price it would be willing to take for the 1,000 units?

d) Assume the company is producing and selling 20,000 units per month. It is considering an arrangement where an outside manufacturer would produce and ship the product directly to customers. Under this arrangement, variable marketing costs would decrease 20% per unit and fixed manufacturing costs would decrease 50%. Fixed marketing costs would not change. What is the maximum amount per unit the company would be willing to pay to the outside manufacturer?

1. Consider the following information:Q1Q2Q3Beginning inventory (units)0300300Actual units produced1,0008001,250Budgeted units to be produced 1,0001,0001,000Units sold7008001,500Manufacturing costs per unit produced$900$900$900Marketing costs per unit sold$600$600$600Fixed manufacturing costs$400,000$400,000$400,000Fixed marketing costs$140,000$140,000$140,000Selling price per unit$2,500$2,500$2,500There are no price, efficiency, or spending variances, and any production-volume variance is directly written off to cost of goods in the quarter in which it occurs. a) Prepare income statements for Q1, Q2, and Q3 using variable costing and absorption costing. b) Explain the differences in operating income between the two costing systems for each quarter. 2.Consider the following information, prepared based on monthly production and sales of 20,000 units:CategoryCost per UnitDirect materials $1.00Direct manufacturing labor$1.20Variable manufacturing overhead$0.80Fixed manufacturing overhead$0.50Variable marketing$1.50Fixed marketing$0.90In addition, the firm currently sells the product for $6 per unit. Consider each of these scenarios independent of each other. a) The company is currently producing 15,000 units per month. A potential customer has contacted the firm and offered to purchase 5,000 units this month only. The customer is willing to reimburse for all manufacturing costs plus a flat fee of $1,000. There would be no variable marketing costs incurred on the contract. Should the company accept the special order? Why or why not? b) Assume the same facts as in part a, except that the company is producing 20,000 units per month. Should the company accept the special order? Why or why not? c) The company is considering selling 1,000 units that are in danger of becoming obsolete. What is the minimum price it would be willing to take for the 1,000 units?

d) Assume the company is producing and selling 240,000 units per year. It is considering an arrangement where an outside manufacturer would produce and ship the product directly to customers. Under this arrangement, variable marketing costs would decrease 20% per unit and fixed manufacturing costs would decrease 50%. Fixed marketing costs would not change. What is the maximum amount per unit the company would be willing to pay to the outside manufacturer? 3. A company purchases and processes 15,000 gallons of raw material at a cost of $30,000. From this process, it produces 600 pounds of JP1 and 900 pounds of JP2. JP1 can be sold for $21 per pound or processed further into 6,000 units of FP1 at a total cost of $12,750. FP1 has a selling price of $4 per unit. JP2 can be sold for $26 per pound or processed further into 10,200 units of FP2 at a total cost of $26,250. FP2 has a selling price of $5 per unit. Assume that the company sells only FP1 and FP2. In other words, it further processes both joint products. Also, assume there is no beginning or ending inventory. a) Allocate the joint costs to JP1 and JP2 using the physical measure method (based on pounds), sales value at split off method, the NRV method, and the constant gross margin percentage NRV method. b) Is it a good idea for the firm to further process the joint products? 4. The ABC Company manufactures widgets. It competes and plans to grow by selling high-quality widgets at low prices and by delivering them to customers quickly. There are many other companies in the industry producing similar widgets. ABC believes it needs to continuously improve its manufacturing and delivery processes and that having satisfied employees are both critical to its long-term success. a) Based on this information, what type of strategy to you believe ABC is pursuing? Be sure to back up your claim with specific evidence. b) List and justify four metrics that you believe ABC should include in its Balanced Scorecard. c) ABC calculates the following figures:2011 operating income$1,850,0002012 operating income$2,013,000Growth component$85,000Price-recovery component($72,000)Productivity component$150,000In addition, the market for widgets did not grow in 2012, input process did not change in 2012, and ABC reduced its selling price in 2012. Based on this information, do you believe ABC’s increase in operating income in 2012 is consistent with the strategy you identified in part a?